Ovum Comment: Alibaba’s plan to expand outside of Asia is a longer-term play

Eden Zoller, Principal Analyst, Consumer

Alibaba is an increasingly a diversified online player that besides e-commerce is  active in mobile payments, applications, mobile messaging, games, video and music streaming. This places Alibaba on a trajectory to become a more broad-based digital services platform and means it will be competing on multiple fronts.  In Europe and North America this will see Alibaba come up against e-commerce and payment giants like Amazon and PayPal, as well as Internet companies Google, Facebook, Twitter and others. These are all strong, highly-entrenched companies that will not easily be dislodged. To make an impact Alibaba will have to be more innovative and move at a faster pace, and outbid these companies when it comes to acquiring promising start ups.  Acquisitions are clearly on Alibaba’s agenda and it has the funds to pursue this strategy, which is already underway with its investment in US mobile messaging service Tango, among others.

Alibaba has a powerful payment asset in Alipay, an affiliate company that has around 100 million mobile payment users. M-commerce is a priority for Alibaba and for the second quarter to end June 2014, mobile revenue was roughly a third of its total transaction volume. We expect Alibaba to use Alipay and future m-commerce acquisitions to spearhead a mobile payments drive outside of China, a strategy that could gain good traction within the Asia Pacific region. But in Europe and the US Alibaba will again have a fight on its hands. The m-payments landscape in these markets is already intensely competitive, with Google, Amazon, PayPal, mobile operators, financial institutions and, more recently, Apple all battling for pole position. Moreover, many of these players are trusted payment brands. Consumer trust is particularly important for mobile payments where concerns over security and privacy are heightened. For European and North American consumers, Alibaba/Alipay is an unknown quantity.

At the same time Alibaba is facing more competition in its home market from Tencent, Baidu and JD.com, among others.  Alibaba might dominate e-commerce and m-payments in China but it cannot afford to lose momentum, and for this reason we expect it to put as much effort into growing business in its home market as it will into international expansion.